Beating the High Cost of Higher Education and Student Debt


This blog addresses America’s too biggest problems:

  • Slow economic growth averaging just 2% since the end of the Great Recession in June 2009. Faster growth means more jobs and better paying jobs.
  • Massive federal debt now 77% of GDP (for the $14 trillion public debt on which we pay interest) and predicted to continue getting worse without a change in policy. As interest rates go back up to normal historical levels the interest payments on this debt will increase greatly and be a huge drag on the federal budget.

As I have reported recently, college costs are growing much faster than healthcare costs which are growing faster than the cost of living in general.  The excessive costs of education and healthcare are, in turn, holding back economic growth.

Regarding the student loan debt problem:

  • For every increased dollar of student aid, college tuition increases 60 cents.
  • Outstanding student loan debt has risen from $200 billion in 1996 to $1.3 trillion today.
  • The highest default rates on student debt occur for community college students (23%) and for-profit college students (18%).

The economist Richard Vedder has made some excellent suggestions for addressing this whole problem:

  • Simplify the entire federal student air system. There should be only two programs, one grant program (Pell grants) and one federal loan program (Plus loans, tuition tax credits, work study, etc.).
  • Give educational vouchers directly to students to empower recipients to weigh costs more closely. These would be strictly limited to low-income students and would be accompanied by modest academic expectations.
  • Require schools to have skin in the game. Schools with abnormally high loan delinquency rates should have to pay a tuition “tax” to the government to help cover costs.

Conclusion. “Financial aid has caused tuition to skyrocket. If we can’t abolish it, we can at least simplify it.”

Follow me on Twitter
Follow me on Facebook

How to Solve the Student Debt Problem: Grow the Economy Faster!


Based on a post I wrote last fall, “Solving the Student Debt Problem,” and a recent Op Ed by the economics journalist, Robert Samuelson, “Good News on the College Debt Front,” here is where I think we are on this serious problem:

  • The unemployment rate is very low for college graduates, about 2.5%. We should strongly encourage post-secondary education for all.
  • Since 1996 outstanding student loans have risen from $200 billion to $1.3 trillion.
  • Counting both community colleges, four year colleges and universities, 56% of college students borrow money to pay for college costs.
  • For undergraduates who attended two and four year colleges, more than half of loans were less than $20,000. Only 10% exceeded $40,000.
  • The highest default rates occur at community colleges (23% in 2012) and at for-profit colleges (18%). Hurt worst are low-income and minority students who never graduated but have unpaid debts.
  • The Federal Reserve Bank of New York has found a close correlation between subsidized loan and Pell Grant limits and the rapid increase of college tuition costs.

It seems clear that the way to address this problem is to focus on where it is worst: for the low-income and minority students who attend community colleges and for-profit colleges.
Capture36In other words:

  • Place a strict lid on the total amount of subsidized loans available for undergraduates, say $25,000 to $30,000 per person.
  • Use the savings achieved in doing this to increase the size of Pell grants for the lowest income students who need help the most.
  • Overall faster economic growth will help college graduates and dropouts alike find better paying jobs and make it easier for them to pay back their college debts.
  • On an individual basis, urge all students, but especially low-income and minority students, to avoid debt as much as possible in the first place!

Conclusion: Careful analysis of the student debt problem shows that there are very useful steps to take which will not cost the federal government more money.

Follow me on Twitter
Follow me on Facebook

Poor Education Is a Large Barrier to Black Progress


My last post, “Racism and Black Progress,” pointed out that, despite all of the racial tension in our society, especially bad at the present time, blacks have made much social and economic progress over the past half century.  All Americans of good will want this progress to continue.
I live in Omaha NE and am personally involved in a very promising public initiative to improve educational outcomes in inner city schools.  It is called the Learning Community and is an Omaha metro-wide effort to close the academic achievement gap between children from low-income families and those from the middle class.
Capture6The above chart shows clearly what the problem is.  Already in third grade FRL (free and reduced priced lunch) kids are behind on the NeSA (Nebraska State Assessment) reading test.  The gap persists into middle school and then gets much worse in high school.
Capture23A recent article in the Omaha World Herald reports that while black students make up 25% of Omaha Public Schools enrollment, they are responsible for 55% of disciplinary incidents.  Obviously, disruptive students are not learning what they need to know to succeed in school and in life.
A promising solution to this very difficult problem of improving educational outcomes for inner city students is early childhood education to prepare these kids to succeed in Kindergarten and then stay in school until graduation.  This is in fact the approach being taken by Omaha’s Learning Community.  But it is clearly a long range program which will take many years to show success.
Conclusion. A solid basic education is essential for success in today’s highly complex society.  Blacks will never reach full social and economic equality with whites until they achieve better educational outcomes.  Early childhood education has much promise in closing the academic achievement gap but will take many years to show significant progress.

Follow me on Twitter
Follow me on Facebook

How the American Higher Education System Contributes to Inequality



Income inequality in the U.S. is a major problem, getting worse all the time.  There are many reasons why this is happening and many suggestions for how to deal with it.  On the other hand, it is well appreciated that a college degree is one of the best tickets for upward mobility into the middle class.  A new book by Suzanne Mettler, “Degrees of Inequality,” shows how American higher education is actually increasing the divide between the haves and have-nots.  She points out that:

  • There are too few college graduates in the U.S.  In 2010 Americans between ages 25 and 34 had a college graduation rate of 33%. At least 10 OECD nations have higher rates (see below). American world leadership in the future will be jeopardized if we don’t continue to be an educational leader as we have been in the past.


  • America is graduating inequality. College degree attainment has increased between 1970 and 2011 for all income groups. However this is happening much more quickly for higher income groups. 83% of 18 to 24 year olds now have a high school diploma and 75% of this group start college. But the completion rate by age 24 is only 47%, mostly from the higher income groups (see below).Capture1
  • Not all college degrees are created equal. Students at private, nonprofit institutions graduate at higher rates than students from public institutions who, in turn, graduate at much higher rates than students from for-profit institutions. And graduates of the for-profits have larger loan debt than for graduates from private nonprofit and public institutions.


Students at for-profit educational institutions tend to be from lower-income families.  As noted, they have lower graduation rates and end up with higher debt levels.  Clearly the three tier system of American higher education has a harmful effect on the young adults who need the most help in moving up the economic ladder.
How should society address this major problem in an era of tight public spending?  One answer is to increase regulation of the government-run student loan program.  All educational institutions should be held at least partially responsible for the defaulted loans of their former students.
Another approach is to increase financial support for community colleges so that they can provide more programs for the low-income students who are most likely to attend them.

Solving the Student Debt Problem?


Today’s New York Times has an excellent article by Kevin Carey on the current status of federal student loans, “A Quiet Revolution is Helping Lift the Burden of Student Debt.” Our current system, called Income-Based Repayment, allows former students to repay their college loans, on a monthly basis, at a rate of 10% of net income, after deducting basic living expenses.  It forgives all loan balances after 20 years, reduced to only 10 years for people who work for government or non-profits.  As shown in the chart below, participation in the IBR program is increasing rapidly.
CaptureMr. Carey shows by example, that the IBR program is quite generous to low paid workers.  Take a teacher who borrows the national average of $29,000 for a bachelor’s degree and another $13,000 for a master’s degree and then takes a teaching job starting at $35,000 and paying $50,000 ten years later.  The teacher’s monthly payments will start at $117 and rise to about $200 in the tenth year.  The teacher will pay back a total of $18,360 and be forgiven the remainder of $48,840 of principal and interest after 10 years.
It makes sense to subsidize college education for teachers and others who work in low wage occupations.  The problem, of course, is that it is very expensive to do so.  The federal government is now committing over $100 billion each year to student loans.  There is over $1 trillion in outstanding federal student loan debt.
Many people have pointed out that our very generous student loan program is subsidizing the rapidly increasing cost of American higher education.  Here are two specific ways to address this problem:

  • Put limits on the amount of money an individual can borrow for college expenses. One such suggestion, from the political scientist, Peter Salins, would set the maximum value of a loan at 50% of the full prevailing average cost of educating undergraduates at U.S. public colleges.
  • Require all colleges to cover 20% of a defaulting student’s loan out of their own pockets. Sheila Bair makes this suggestion for for-profit colleges only but it should apply to all colleges, public and private as well as for-profit.

There are lots of low-cost and high quality educational institutions around the country, including the University of Nebraska at Omaha where I work!  Both students (and their families), as well as the colleges they attend, need to have higher stakes in limiting the explosive costs of higher education.

Why America Needs the Common Core


It is well understood that American educational standards are falling behind those of many other developed nations.  I have recently discussed this issue from the point of view of giving more public support to community colleges, as recently proposed by President Obama.
Capture1But the problem is much broader than this. American college students in general score very poorly in basic critical thinking and communication skills.  As the above chart shows, even college seniors are only 60% proficient in these skills and college freshmen do much more poorly.
A new book, “The Smart Society: Strengthening America’s Greatest Resource, its People,” by the political scientist, Peter Salins, provides a good description of the basic problem.  It starts long before college!  America actually has two different K-12 academic achievement gaps.  One, the “Megagap” is the huge test score disparity between middle class students and low-income students, who are largely minorities.  This achievement gap is best addressed with expanded early childhood education, as we are beginning to do in Omaha NE where I live.
But as Mr. Salins points out there is also a Mainstream Achievement Gap between what most non-disadvantaged American youth are capable of learning and what is actually expected of them in the typical U.S. public school.  It is this learning gap which is primarily responsible for America’s mediocre standing on international achievement tests.
CaptureMr. Salins argues that the Mainstream gap is closable because there is such an enormous variation in achievement scores among the 50 states, as shown in the above chart.  In particular, in Massachusetts, a top state, the Education Reform Act of 1995 included the following reforms:

  • The requirement for all state school districts to adhere to rigorous curriculum specifications.
  • A new statewide diagnostic testing protocol.
  • More rigorous testing of new teacher candidates.
  • A statewide uniform high school graduation standard.

Reforms such as these are what make up the Common Core State Standards Initiative.  Such high standards are working well in the top performing states.  Other states need to seriously implement these same standards.  America’s competitive edge depends on it!


Education Reform Is Speeding Up


A front page article in yesterday’s Wall Street Journal, “Biggest Changes in a Decade Greet Students in Classroom”, discusses many new and recent developments in K-12 education.  The controversial Common Core, with tougher math and reading standards, has been adopted by 45 states.  A total of 41 states have agreed to link teacher evaluations to test scores or other student achievement measures and 15 states use, or plan to use, an A – F grading scale to rate schools.  Last year there were 5997 charter schools, up from 2559 during the 2002-2003 school year.
What all of this means is that states are hotbeds of educational experimentation.  Meanwhile Congress is trying to figure out how to replace the unpopular No Child Left Behind law which was enacted in 2002 and has been renewed on a year by year basis since it expired in 2007.  Both the Senate and the House are currently considering legislation to give individual states more flexibility in figuring out how to increase educational success.
The fiscal implications of this whole movement of educational reform and decentralization are huge.  The U.S. Department of Education has over 100 separate programs for K-12 education alone, involving massive duplication and inefficiency, with a combined budget of $100 billion per year.  A smaller total amount of money could be given directly to the states in the form of block grants devoted to education.  The states are able to spend the money more effectively than the federal DoE and at less total cost.  Conclusion: better results for significantly less money.
This helps reduce the deficit!